Pointing out that 50 per cent of UK institutional investment in “linkers” is passive, she said that investors stood to earn an attractive return above the prevailing rate of inflation if they opted for active management of their portfolios.
She said that because passive investors are forced buyers and sellers of inflation-linked bonds, they are invariably saddled with sub-optimal portfolios.
Ms Roberts claimed that F&C, which manages €3.5bn of assets in inflation-linked bonds, could achieve a return of 50 basis points above the Barclays Inflation-Linked Global Bond Index.
Unlike the passive manager, she said F&C could gain from using the strategies of duration, yield curve, asset allocation and stock selection.
She explained: “The passive manager has to hold the index, while we can overweight areas of the yield curve that we prefer. We can take a view on market direction and we can take a view on individual bonds being expensive or cheap. We can also take advantage of regulatory change in Europe which has been supportive of inflation-linked bonds, to overweight these instruments.”
F&C, Ms Roberts said, could take strategic and tactical positions at bond auctions of inflation bonds that benefit the investor.
“We can take a view on the level of market activity generated by passive managers and market makers and decide whether we want to buy or sell the bonds,” added Ms Roberts. “We can be contrarian in the marketplace and sell and buy bonds as market liquidity develops.
“For instance, if we believe that the market wants these bonds and is prepared to pay for them, we call sell at better prices. We can take advantage of benchmark changes and the positions of market makers in the bonds to demand better prices.”
Active managers, she added, can also take a view ahead of bond issuance. If they decide the bond has weakened in price, it can be sold before it is issued and then bought back at the auction when the price is at its lowest.
She said that 40 per cent of active management alpha came from duration, 20 per cent from yield curve, 30 per cent from asset allocation out of the benchmark and 10 per cent from stock selection.
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